Plug Power Inc. — Form 10-Q Summary
Business and period: Plug Power designs and sells hydrogen fuel-cell systems, hydrogen infrastructure, fuel and related services, primarily for material-handling vehicles, with additional stationary-power and electric-delivery-vehicle applications. This unaudited report covers the quarter and nine months ended September 30, 2019; comparisons are with the corresponding 2018 periods. Dollar amounts below are in millions unless otherwise noted.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $56.4 | $53.2 | $132.0 | $114.8 |
| Gross profit (loss) | $5.3 | $4.4 | $8.6 | $(1.9) |
| Gross margin | 9.3% | 8.3% | 6.5% | (1.6)% |
| Operating loss | $(13.2) | $(12.6) | $(49.0) | $(56.6) |
| Net loss attributable to company | $(21.2) | $(15.6) | $(73.7) | $(61.3) |
| Net loss per share, basic and diluted | $(0.09) | $(0.07) | $(0.32) | $(0.28) |
- Revenue increased 6% in Q3 and 15% for the nine-month period. Fuel-cell system and infrastructure sales rose 4% and 19%, respectively; fuel-cell unit revenue grew, while hydrogen infrastructure installations fell. Fuel-delivery revenue also increased, supported by more sites and higher fuel prices.
- Q3 gross profit improved, but gross margin remained low. Nine-month gross profit turned positive from a loss in 2018, primarily reflecting better margins on fuel-cell systems and infrastructure. Services, PPAs and delivered fuel continued to have negative gross margins.
- Net losses widened despite improved nine-month operating loss: interest and other expense rose to $24.7 million from $15.6 million for the nine months, reflecting higher debt and financing costs. Q3 operating expenses were $18.4 million; SG&A increased 20% year over year, while R&D declined 5%.
Cash flow, liquidity and debt
- For the nine months, operating cash use was $51.8 million, versus $41.6 million in 2018; investing cash use was $9.0 million, versus $17.5 million. Financing provided $149.1 million, versus $53.2 million.
- At September 30, cash and cash equivalents were $43.3 million; restricted cash was $155.0 million, for combined cash and restricted cash of $198.3 million. Working capital was $70.5 million, compared with $9.2 million at December 31, 2018. Restricted funds support financing and lease arrangements and are not equivalent to unrestricted cash.
- Finance obligations totaled approximately $249.6 million on the balance sheet. Long-term debt was $96.0 million, including a $96.3 million outstanding balance under the Generate Capital facility. That secured facility bears 12% interest, matures in December 2022 and is secured by substantially all company and guarantor assets, subject to exceptions.
- Convertible notes included $100 million principal bearing 5.5% due 2023 and a new $40 million principal note bearing 7.5% due January 2023. The new note requires repayment of $48 million at maturity if not converted or otherwise settled under its terms. The company reported total convertible notes, net, of $107.8 million.
- Management stated that working capital, anticipated operating cash flows and expected financing sources should fund operations for at least one year after issuance of the statements, but cautioned that future funding may not be available on acceptable terms. The company reported continuing net losses, negative operating cash flows and an accumulated deficit of approximately $1.3 billion.
Material changes, outlook and risks
- The company refinanced prior debt and certain equipment leases with a $100 million Generate Capital facility in 2019, issued $39.1 million net proceeds from the new convertible note, and raised equity proceeds through offerings and its at-the-market program. These financings supported working capital and deployments but increased financing costs and obligations.
- Restricted cash rose substantially year to date. The filing reports $75.9 million required as lease security and $79.1 million of letters of credit backed by security deposits for sale/leaseback arrangements. Remaining payments under relevant financing arrangements create ongoing cash demands.
- Warrants issued in connection with Amazon and Walmart commercial agreements reduced revenue by $4.6 million in Q3 and $10.2 million over nine months. The agreements contemplate, but do not guarantee, future purchase orders; warrant vesting depends on customer payments and estimates may change.
- No specific revenue, earnings or margin guidance is provided. Management’s ability to reach profitability depends on sales and shipment timing, positive margins across product lines, cost control, customer financing, project financing and access to capital.
- Key operating risks include continued losses and potential need for additional financing, customer concentration, fuel and component costs and availability, product reliability and service costs, competition, and execution in new markets. Three customers accounted for 62.4% of nine-month revenue; two customers represented 74.2% of accounts receivable at quarter-end.
- Service gross margins worsened; PPA and fuel-delivery margins were deeply negative. Management attributed cost pressures to items including maintenance and depreciation, warrant provisions, investments in fuel-system efficiency and a fuel-billing dispute with a vendor. The company also received $4.5 million from a vendor toward replacement of certain composite fuel tanks that did not meet supply-contract standards.
- Litigation relates to a 2018 forklift accident at a Procter & Gamble facility, including personal-injury, wrongful-death and property/business-loss claims. The company intends to defend the cases; outcomes and damages were uncertain, and management did not expect a material financial impact.
Important facts for investors to verify
- Whether unrestricted liquidity and new project or capital financing can cover operating cash burn, restricted-cash requirements and scheduled debt and lease payments.
- Progress toward positive gross margins, especially in services, PPAs and delivered fuel, and whether reported improvement in system-sales margins is sustainable.
- Customer order conversion, revenue concentration, receivable collections and the assumptions behind Amazon and Walmart warrant-related revenue reductions.
- Terms and compliance status of the 12% secured loan, including its collateral-coverage covenant, future principal limits and potential additional fees.
- Potential dilution from warrants, preferred stock, stock compensation and convertible notes; the filing notes that 5.25 million warrants were exercised on October 15, 2019, after quarter-end.
- Developments in the forklift-accident litigation and the composite-tank replacement program, including any changes in expected costs or liabilities.